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TheTheTheThe 12121212thththth Five-yearFive-yearFive-yearFive-year PlanPlanPlanPlan forforforfor thethethethe DevelopmentDevelopmentDevelopmentDevelopment andandandand ReformReformReformReform ofofofof

thethethethe FinancialFinancialFinancialFinancial IndustryIndustryIndustryIndustry

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ChinaChinaChinaChina BankingBankingBankingBanking RegulatoryRegulatoryRegulatoryRegulatory CommissionCommissionCommissionCommission

ChinaChinaChinaChina SecuritiesSecuritiesSecuritiesSecurities RegulatoryRegulatoryRegulatoryRegulatory CommissionCommissionCommissionCommission

ChinaChinaChinaChina InsuranceInsuranceInsuranceInsurance RegulatoryRegulatoryRegulatoryRegulatory CommissionCommissionCommissionCommission

StateStateStateStateAdministrationAdministrationAdministrationAdministration ofofofof ForeignForeignForeignForeign ExchangeExchangeExchangeExchange

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ContentsContentsContentsContents

ContentsContentsContentsContents ................................................................................................................................................................................................................................................................................................................................................................................................................................................................................ 2222

ForewordForewordForewordForeword ................................................................................................................................................................................................................................................................................................................................................................................................................................................................................ 6666

ChapterChapterChapterChapter IIII AcceleratingAcceleratingAcceleratingAccelerating thethethethe reformreformreformreform andandandand thethethethe openingopeningopeningopening upupupup ofofofof thethethethe financialfinancialfinancialfinancialindustry,industry,industry,industry, andandandand propellingpropellingpropellingpropelling transformationtransformationtransformationtransformation ofofofof thethethethe economiceconomiceconomiceconomicdevelopmentdevelopmentdevelopmentdevelopment patternpatternpatternpattern....................................................................................................................................................................................................................................................................................................................................7777

Section 1 Main achievements in the financial reform and development in the11th Five-year Plan period......................................................................7

Section 2 Opportunities and challenges under the 12th Five-year Plan............... 10

Section 3 Guideline..............................................................................................11

Section 4 Main objectives....................................................................................11

Section 5 Policy focuses......................................................................................13

ChapterChapterChapterChapter IIIIIIII ImprovingImprovingImprovingImproving macromacromacromacro adjustmentadjustmentadjustmentadjustment andandandand controlcontrolcontrolcontrol andandandand facilitatingfacilitatingfacilitatingfacilitating steadysteadysteadysteadyandandandand soundsoundsoundsound economiceconomiceconomiceconomic developmentdevelopmentdevelopmentdevelopment....................................................................................................................................................................................................................................15151515

Section 1 Establishing a robust financial macro prudential policy framework... 16

Section 2 Enhancing the monetary policy adjustment and control......................16

Section 3 Bolstering financial support to under-served sectors...........................17

Section 4 Further enhancing the coordination among macro-economic policies18

Column 1: Financial macro prudential policy framework..............................................19

ChapterChapterChapterChapter IIIIIIIIIIII OptimizingOptimizingOptimizingOptimizing thethethethe deploymentdeploymentdeploymentdeployment andandandand establishingestablishingestablishingestablishing thethethethe systemsystemsystemsystem ofofofof modernmodernmodernmodernfinancialfinancialfinancialfinancial organizationorganizationorganizationorganization....................................................................................................................................................................................................................................................................................................................20202020

Section 1 Improving the deployment of the banking industry............................ 20

Section 2 Facilitating the regulated development of financial institutions in the

securities industry................................................................................ 21

Section 3 Encouraging innovative development of firms in the insuranceindustry................................................................................................ 22

Section 4 Continuing to drive forward the pilot program of financial

institutions’ offer of lines of business across multiple financialsectors in an active and stable manner.................................................23

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ChapterChapterChapterChapter IVIVIVIV EncouragingEncouragingEncouragingEncouraging innovation,innovation,innovation,innovation, speedingspeedingspeedingspeeding upupupup thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof aaaamulti-layeredmulti-layeredmulti-layeredmulti-layered financialfinancialfinancialfinancial marketmarketmarketmarket systemsystemsystemsystem.................................................................................................................................................................................................... 23232323

Section 1 Focus on stock market improvement...................................................23

Section 2 Actively developing the bond market..................................................24

Section 3 Continuing to develop monetary, foreign exchange and goldmarkets................................................................................................ 24

Section 4 Proactively developing the insurance market...................................... 24

Section 5 Developing the futures and financial derivatives market.................... 25

Column 2: Inter-bank market credit risk mitigation instruments....................................26

ChapterChapterChapterChapter VVVV ContinuouslyContinuouslyContinuouslyContinuously improvingimprovingimprovingimproving financialfinancialfinancialfinancial operationaloperationaloperationaloperational mechanismmechanismmechanismmechanism throughthroughthroughthroughreformreformreformreform........................................................................................................................................................................................................................................................................................................................................................................................................................ 27272727

Section 1 Steadily advancing the market-oriented reform of interest rate.......... 27

Section 2 Improving the Renminbi exchange rate formation mechanism...........27

Section 3 Gradually achieving convertibility of Renminbi under capital

accounts............................................................................................... 28

Section 4 Further improving the operation and management of foreignexchange.............................................................................................. 28

Section 5 Continuing to deepen the reform of financial institutions................... 28

Section 6 Encouraging and guiding the entry of private capital into financialservice area.......................................................................................... 29

ChapterChapterChapterChapter VIVIVIVI DeepeningDeepeningDeepeningDeepening thethethethe opening-upopening-upopening-upopening-up ofofofof thethethethe financialfinancialfinancialfinancial sectorsectorsectorsector forforforfor mutualmutualmutualmutual benefitbenefitbenefitbenefitandandandand win-winwin-winwin-winwin-win resultresultresultresult........................................................................................................................................................................................................................................................................................................................................ 30303030

Section 1 Increasing the level of opening-up for financial sector....................... 30

Section 2 Expanding Renminbi's cross-border use..............................................30

Section 3 Deepening financial cooperation between Mainland China andHong Kong, Macau and Taiwan.......................................................... 31

Section 4 Enhancing international and regional financial cooperation............... 31

Column 3: Cross-border trade and investment settled in Renminbi...............................32

ChapterChapterChapterChapter VIIVIIVIIVII EnhancingEnhancingEnhancingEnhancing regulationregulationregulationregulation forforforfor financialfinancialfinancialfinancial stabilitystabilitystabilitystability andandandand securitysecuritysecuritysecurity........................................................................ 33333333

Section 1 Continuing to enhance financial regulation.........................................33

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Section 2 Increasing the effectiveness of financial regulatory coordination....... 34

Section 3 Strengthening the prevention and warning of systemic financial

risks......................................................................................................34

Section 4 Establishing and improving the deposit insurance system and theexit mechanism of financial institutions.............................................. 35

Section 5 Improving the financial oversight system of local governments.........35

Section 6 Guiding and regulating the healthy development of private lending...35

Column 4: Deposit insurance system............................................................................. 36

ChapterChapterChapterChapter VIIIVIIIVIIIVIII ConsolidatingConsolidatingConsolidatingConsolidating thethethethe groundworkgroundworkgroundworkgroundwork andandandand optimizingoptimizingoptimizingoptimizing thethethethe environmentenvironmentenvironmentenvironment forforforforfinancialfinancialfinancialfinancial developmentdevelopmentdevelopmentdevelopment................................................................................................................................................................................................................................................................................................................ 37373737

Section I Continuing to enhance legal development governing the financialindustry................................................................................................ 37

Section II Advancing the development of the payment system and the credithistory system and initiatives such as the anti-money laundering

program................................................................................................37

Section III Improving the financial accounting system and the statistical system38

Section IV Improving the level of IT application in financial industry.................38

Section V Protecting the rights and interests of financial consumers.................. 38

Section VI Increasing the level of financial studies...............................................39

Section VII Developing pools of financial professionals........................................39

Section VIII Advancing the development of industry self-regulatoryorganizations........................................................................................39

ChapterChapterChapterChapter IXIXIXIX ImprovingImprovingImprovingImproving thethethethe assuranceassuranceassuranceassurance mechanismmechanismmechanismmechanism forforforfor thethethethe implementationimplementationimplementationimplementation ofofofof thethethethePlanPlanPlanPlan........................................................................................................................................................................................................................................................................................................................................................................................................................................ 40404040

Section I Enhancing the organizational and direction for the implementationof the Plan............................................................................................40

Section II Enhancing consistency and harmonization with plans in other areas..40

Section III Implementing and improving the evaluation mechanism of the Plan. 40

Annex: 42

Indicators for the development of the financial industry during the 12th Five-year

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Plan period and their explanations.......................................................42

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ForewordForewordForewordForeword

The 12th Five-year Plan for the Development and Reform of the Financial Industry (“the

Plan”) is a specific national plan adopted under the 12th Five-year Plan upon the approval ofthe State Council. It is the second medium term financial development and reform plan issuedby the CPC Central Committee ever since the launch of the all-round strategy to build awell-off society and the scientific outlook on development. The Plan has been prepared inaccordance with the 12th Five-year Plan for National Economic and Social Development andrelevant documents pertinent to the 2012 National Financial Work Conference. The rollout

and effective implementation of this plan will have crucial influence on the improvement ofvarious financial regimes and mechanisms and the promotion of steady and sounddevelopment of the financial industry.

In September 2010, the State Council approved the 12th Five-year Plan for the Development

and Reform of the Financial Industry and officially classified the same as a national thematicplan. Ever since then, the People’s Bank of China (China's central bank), working jointly withthe CBRC, CSRC, CIRC and State Administration of Foreign Exchange, has conducted aseries of surveys, organizing various expert seminars and soliciting comments from the public,carried out in-depth research on major issues regarding the development and reform of thefinancial industry under the 12th Five-year Plan.

The Plan aims to provide the guideline, main objectives and policy direction of the reformand development of the financial industry under the 12th Five-year Plan, stating the prioritiesof financial work and pooling efforts from various stakeholders in order to drive the financialdevelopment into a new phase. The Plan consists of nine chapters: Chapter I reviews the mainachievements made in the development and reform of the financial industry under the 11th

Five-year Plan, analyzing the opportunities and challenges and stating the guideline, the mainobjectives and the policy priorities under the 12th Five-year Plan. Chapters II through VIIIaddresses issues such as improving the financial macro adjustment and control, strengtheningthe organizational structure, developing the financial markets, deepening the financial reform,

further opening up the financial industry, safeguarding financial stability and enhancinginfrastructure, and specifying the key tasks of the development and reform of the financialindustry under the 12th Five-year Plan. The last chapter specifies the safeguard mechanisms tobe adopted for the implementation of the Plan.

The implementation period for the Plan is from 2011 to 2015.

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ChapterChapterChapterChapter IIII AcceleratingAcceleratingAcceleratingAccelerating thethethethe reformreformreformreform andandandand thethethethe openingopeningopeningopening upupupup ofofofof thethethethe financialfinancialfinancialfinancial industry,industry,industry,industry,andandandand propellingpropellingpropellingpropelling transformationtransformationtransformationtransformation ofofofof thethethethe economiceconomiceconomiceconomic developmentdevelopmentdevelopmentdevelopment patternpatternpatternpattern

Under the 12th Five-year Plan, China’s financial industry enters a critical period of strategicopportunities. Taking advantage of such opportunities and following the new financial trendshome and abroad, China’s financial industry will continue to drive forward the financialreform, opening up and development, with a view to building a comprehensive anddiversified financial system with efficient services, prudential supervision and proper riskcontrol. The role of financial markets will be strengthened to serve the acceleration of

transformation in the economic development pattern.

SectionSectionSectionSection 1111 MainMainMainMain achievementsachievementsachievementsachievements inininin thethethethe financialfinancialfinancialfinancial reformreformreformreform andandandand developmentdevelopmentdevelopmentdevelopment inininin thethethethe 11111111thththth

Five-yearFive-yearFive-yearFive-year PlanPlanPlanPlan periodperiodperiodperiod

During the 11th Five-year Plan period, under the guidance of the CPC Central Committee and

the State Council, China’s financial industry withstood the international financial crisis andwitnessed significant enhancement in overall competitiveness and risk resilience as well asever strengthening financial macro adjustment and control and supervision. The financialmarket enjoyed rapid development with further financial reform and opening up, considerablybolstered financial infrastructure and improved financial services, playing a crucial role inaddressing the impact of international financial crisis and maintaining the sound development

of national economy.

1)1)1)1) SignificantlySignificantlySignificantlySignificantly improvedimprovedimprovedimproved overalloveralloveralloverall competitivenesscompetitivenesscompetitivenesscompetitiveness amongamongamongamong financialfinancialfinancialfinancial

institutionsinstitutionsinstitutionsinstitutions

Financial institutions witnessed rapid growth in their asset size and risk resilience capability.By the end of 2010, the aggregate assets of financial institutions in banking, securities and

insurance industries reached RMB 101.36 trillion, representing an accumulated increase of158% compared with the end of 2005. Among this, the share contributed by banking industryamounted to RMB 94.26 trillion, representing a 152% growth compared with the end of 2005with an average capital adequacy ratio of 12.2%. The ratio of provisions set aside by

commercial banks stood at 217.7%, exhibiting significantly enhanced overall strength. Theshare of assets brought by the securities industry reached RMB 2.05 trillion, exhibiting a583% surge compared to the end of 2005 and substantially enhancing its risk resiliencecapability. The insurance industry contributed a share of RMB 5.05 trillion in assets, showinga 230% increase compared with the end of 2005 and featuring increasingly sound rules andprocedures.

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2)2)2)2) ContinuouslyContinuouslyContinuouslyContinuously strengthenedstrengthenedstrengthenedstrengthened financialfinancialfinancialfinancial macromacromacromacro adjustmentadjustmentadjustmentadjustment andandandand controlcontrolcontrolcontrol andandandand

financialfinancialfinancialfinancial supervisionsupervisionsupervisionsupervision

Based on the then prevailing economic and financial operating conditions, correspondingadjustments were made in monetary policies in different periods, using various policyinstruments in macro adjustment and control and strengthening the predictability, pertinenceand flexibility of monetary policies. Financial supervision was enhanced. China’s bankingindustry demonstrated ever improving supervisory and regulatory capabilities, the securitiesand futures industry came out with an increasingly solid basic regulatory regime, and the

insurance industry equipped itself with a modernized regulatory framework. Financialregulatory coordination and information sharing were reinforced. The prevention andresolution mechanism against systemic financial risks was beefed up. Steady improvementtook place in the development of the system of assessment of dynamic financial stability and

the deployment of financial safety nets. In addition, the securities investor protection fund, thefutures investor safeguard fund and the insurance safeguard fund were established to activelydrive forward the development of a deposit insurance system.

3)3)3)3) ConsiderablyConsiderablyConsiderablyConsiderably bolsteredbolsteredbolsteredbolstered rolerolerolerole ofofofof financialfinancialfinancialfinancial marketsmarketsmarketsmarkets

The bonds market enjoyed rapid growth, with the bond issue (including Central Bank notes)reaching RMB 9.7 trillion in 2010, representing a 120.5% rise compared with 2005. The debt

financing tools of non-financial enterprises were launched, including short-term financingnotes, Medium Term Notes and SME collective bonds. The monetary, foreign exchange andgold markets developed rapidly, with the relevant arrangements steadily improving andfinancial innovation picking up speed. The securities markets also witnessed continuousexpansion. By the end of 2010, 2063 companies were listed at Shanghai and Shenzhen Stock

Exchanges, accounting for an aggregate market capitalization of RMB 26.54 trillion andexhibiting a 50% and 719% increase respectively compared with the end of 2005. The MainBoards became more solid and the SME Board was further strengthened. The GEB waslaunched with success, while the OTC markets enjoyed gradual development. The futures

markets saw a stable growth with 13 commodity futures products listed and the stock indexfutures launched. The trading volume for commodity futures ranked the top worldwide. Theinsurance market experienced a speedy development with the premium revenue, climbing toRMB 1.45 trillion in 2010, i.e. a 170% increase on 2005.

4)4)4)4) BreakthroughsBreakthroughsBreakthroughsBreakthroughs inininin thethethethe financialfinancialfinancialfinancial reformreformreformreform

Major state-owned commercial banks completed the shareholding reform and successfully got

listed. They showed continuous enhancement in corporate governance structure as well asmajor development in policy-based banking reform. Small and medium commercial bankswere committed to ever deepening reform, while financial asset management companiesmade steady progress in their transformation. With respect to rural credit cooperatives, new

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breakthroughs were made in the property right system reform, with orderly progressaccomplished in the development of innovative rural financial institutions. The financialindustry has played a more critical role in supporting agriculture, rural areas and farmers. The

reform of non-tradable shares came to fruition, with the stock issue system reform furtherdeepened and the program of comprehensive regulation of firms engaging in securities-relatedactivities completed and implemented on a routine basis. The insurance corporate system wasmodernized, where the insurance, reinsurance, insurance intermediary and insurance assetsmanagement activities developed in a balanced manner.

The market-based interest rate reform enjoyed stable progress, with market benchmarkinterest rate practices such as SHIBOR introduced and the role of market-based pricingmechanism enhanced. The exchange rate formation mechanism underwent further progress,with an enhanced regulated floating exchange rate system put in place based on market

supply and demand as well as the currency basket peg.

5)5)5)5) DeepeningDeepeningDeepeningDeepening thethethethe openingopeningopeningopening upupupup andandandand furtherfurtherfurtherfurther internationalinternationalinternationalinternational cooperationcooperationcooperationcooperation ofofofof thethethethe

financialfinancialfinancialfinancial industry.industry.industry.industry.

Delivering on its agenda of opening up, the financial industry provided foreign financialinstitutions with national treatment so as to attract overseas strategic investors. Setting upoverseas branches and M&As, domestic financial institutions steadily expanded into overseas

markets. Foreign exchange administration saw a more rapid change in relevant concept andapproach, while implementation of measures aiming at fostering cross border trade andinvestment was accelerated. The practice of set-off in foreign currency payments relating toimport was further improved. Mandatory exchange settlement was abolished, and domesticmarket participants were allowed to keep foreign exchange revenues under current accounts

at their own discretion. The Renminbi capital account convertibility program continued toprogress, QDII and QFII regime was steadily implemented, cross-border Renminbi settlementwas piloted and bilateral currency swap arrangement enjoyed stable development. With theever deepening international financial cooperation, China’s financial industry actively

participated in the setting and revision of international financial standards and regulations,driving forward international financial regulatory reform and reinforcing its say andinternational position.

6)6)6)6) NotableNotableNotableNotable achievementsachievementsachievementsachievements inininin thethethethe establishmentestablishmentestablishmentestablishment ofofofof thethethethe legallegallegallegal frameworkframeworkframeworkframework andandandand

infrastructureinfrastructureinfrastructureinfrastructure inininin thethethethe financialfinancialfinancialfinancial industryindustryindustryindustry

The legal framework and law enforcement of China’s financial industry experienced gradual

improvement. Financial products and services became more diversified. Payment system hasbeen equipped with a wider range of rules and regulations, while credit investigation andcredit history system gradually came into shape. Currency issue system was further enhancedand treasury management made continuous progress. The financial industry enjoyed

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significant development in terms of information technology. Supervision of anti-moneylaundering was further tightened up. Financial and accounting rules as well as rules governinginformation disclosure by financial institutions showed steady improvement. Financial

statistics consolidation system was created and the human resources development of financialprofessionals saw notable effectiveness.

SectionSectionSectionSection 2222 OpportunitiesOpportunitiesOpportunitiesOpportunities andandandand challengeschallengeschallengeschallenges underunderunderunder thethethethe 12121212thththth Five-yearFive-yearFive-yearFive-year PlanPlanPlanPlan

During the 12th Five-year Plan period, in the rapid transformation of its development pattern,China will exhibit the characteristics of this new phase of economic and social development.

In the post-international financial crisis context, the global economic and financial patternwill also continue to adjust. The 12th Five-year Plan period is a critical period for China’sfinancial industry in terms of strategic opportunities.

WeWeWeWe areareareare facingfacingfacingfacing preciouspreciouspreciousprecious opportunitiesopportunitiesopportunitiesopportunities forforforfor speedingspeedingspeedingspeeding upupupup financialfinancialfinancialfinancial reformreformreformreform andandandand development.development.development.development.

At the international level, financial crisis changed the world economic and financial pattern.Having successfully absorbed the impact of financial crisis, emerging markets, especiallyChina, will play a much more critical role in international economic and financial affairs.Financial crisis pushes global financial regulators to continuously improve regulatory rules.The international community has reached consensus in heightened financial macro prudentialoversight and systemic financial risk prevention, whereby capital, liquidity, systemically

important financial institutions and shadow banking must be placed under reinforcedsupervision. This has further motivated China to learn from international standards and driveforward its own financial reform. During the 11th Five-year Plan period, at domestic level,China has made immense achievements in the development and reform of the financialindustry, setting stage for further development; it reached a higher level of industrialization,

IT application, urbanization, market-based approach and globalization, with the nationalincome steadily growing and economic structure transforming at a faster pace, thus providinga solid ground for economic development. This has boosted the demand for diversifiedfinancial services, and will further help diversify the base of financial institutions and build a

multi-layered financial market in China.

WeWeWeWe areareareare alsoalsoalsoalso facingfacingfacingfacing multiplemultiplemultiplemultiple challengeschallengeschallengeschallenges inininin acceleratingacceleratingacceleratingaccelerating financialfinancialfinancialfinancial reformreformreformreform andandandand development.development.development.development.

On the international front, profoundly influenced by international financial crisis, bothdeveloped and emerging countries are feeling the pressure to transform their financialdevelopment pattern, while coordination of monetary and financial policies across border arefaced with ever more difficulties. The external environment for China’s financial development

being increasingly complex, China has more responsibilities to shoulder in connection withinternational financial issues such as the setting of international financial standards andinternational financial governance. On the domestic front, with China opening up further, it isimperative to establish and improve the financial policy framework that is expected to be

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capable of effective adjustments in the context of open economy of China as a major poweron the world stage. With the rising cost of factors of production, China’s “demographicdividend” starts to wear out while problems inherent to an aging population become

increasingly obvious, leading to new changes in the economic infrastructure underlying thefinancial development. Macro financial control is faced with more complex challenges.Against the backdrop of disequilibrium in economic structure and in the balance of payments,increased foreign exchange inflow forced China to continue to inject money to the economicsystem. It will take a long and arduous process for the financial industry to change its

approach in supporting the economic development and to complete restructuring. SMEs,agriculture, rural areas and farmers remain under-served. The financial industry lackssophistication, while the governance of state-owned shareholding financial institutions stillneeds to improve. The overall competitiveness and risk resilience capabilities are yet to be

strengthened. These factors cannot be overlooked.

Faced with the aforementioned best ever opportunities and numerous complex challenges, wemust take initiatives to adapt to changes in the external environment, anticipate developmentsin the financial industry and effectively mitigate risks in order to explore new frontiers infinancial development and reform.

SectionSectionSectionSection 3333 GuidelineGuidelineGuidelineGuideline

Abiding by the principles of socialism with Chinese characteristics, under the guidance of thetheory of Deng Xiaoping and “three representatives”, we aim to further deliver on thescientific outlook on development, drive forward the financial reform, the opening up anddevelopment on all fronts, significantly enhance the overall power, internationalcompetitiveness and risk resilience of China’s financial industry, considerably strengthen the

financial industry’s role in serving real economy, beef up financial macro control andregulation system, create a secure and sound modern financial system with a full array ofefficient services with reasonable structure, as well as propel financial reform anddevelopment into a new phase.

SectionSectionSectionSection 4444 MainMainMainMain objectivesobjectivesobjectivesobjectives

Steady and rapid growth of the size of the financial industry shall be maintained. Thefinancial service industry shall be developed on all fronts. During the 12th Five-year Planperiod, the value added created by the financial service industry is expected to account foraround 5% of GDP, with the size of the overall funding provided to the real economyincreasing at a proper rate.

Significant progress in the financial structure shall be accomplished. By the end of the 12th

Five-year Plan period, the direct funding raised by non-financial institutions shall make upover 15% of the overall funding provided to the real economy. The structure and organization

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of major financial sectors such as banking, securities and insurance shall become morereasonable.

The market shall play a more important role in financial resources allocation. Themarket-based reform of interest rate is expected to show significant progress and theRenminbi exchange rate formation mechanism to further improve. Renminbi shall be moreextensively used cross border. To the extent that information surveillance shall be carried outin a timely and effective fashion and risks remain under control, Renminbi capital accountconvertibility shall be gradually achieved. Activities shall be conducted in an even more

market-based approach in banking, securities and insurance sectors, while further progressshall be secured in the multi-layered financial market development, with significant advancesexpected in the development of market-oriented mechanisms.

Reform in financial institutions shall be deepened. Major financial institutions shall gradually

modernize their corporate systems, improve innovative capabilities and risk management.Firms engaging in securities- and futures-related activities shall develop in compliance withrelevant rules and regulations, while insurance firms shall further strengthen their serviceinnovation capabilities. Financial institutions shall further enhance their internationalcompetitiveness.

Full coverage of financial services shall be achieved. Sticking to the fundamental requirement

of the financial industry serving real economy, money invested shall go to real economy,curbing the flow of capital from real economy to purely speculative activities and preventingthe manufacturing industry from losing grounds to other industry sectors. More support shallbe given to technological innovation and economic restructuring. Loans extended to sustainagricultural activities, rural areas and farmers and small and micro enterprises shall grow at a

rate higher than the average of all loans issued. Systems that underpin capital markets shall befurther developed and play a bigger role in economy. The insurance industry shall seesignificant expansion in its coverage and the range of service offer.

Financial risks shall be maintained under control in general. Major financial institutions in

banking industry shall preserve high capital quality and level, while the percentage ofnon-performing loans shall be kept at relatively low level, with increasingly stronger riskmanagement capability. The risk prevention mechanism of the securities industry shall furtherimprove and the risk alert and surveillance mechanism of the futures markets shall continue tobe strengthened. The capital strength and solvency of the insurance industry shall enjoyconsiderable enhancement. The risk prevention capabilities pertaining to foreign exchange

and the balance of payments shall significantly increase. The prevention and warning,assessment and resolution mechanism designed to address systemic financial risks shallfurther develop, while financial safety nets including the deposit insurance system shall beestablished.

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SectionSectionSectionSection 5555 PolicyPolicyPolicyPolicy focusesfocusesfocusesfocuses

Financial macro control shall improve. The mix of policy objectives shall be optimized,

attaching greater importance to maintaining price stability. A counter cyclical financial macroprudential policy framework shall be established. Mechanisms that enable monetary policy tobring about effects shall be improved, and the mix of instruments and means of financialmacro control shall be diversified.

The economic restructuring shall be propelled. Robust financial institution systems andmarket systems shall help boost financial service capabilities, and drive forward the economic

restructuring and the transformation in the economic development pattern. The establishmentof a national innovative system shall be facilitated and financial support to technologicalinnovation shall be strengthened, so as to promote the innovative development of strategicemerging industries including new energy and new materials. Green development shall be

promoted, speeding up the creation of a green financial system and facilitating energyefficiency and emission reduction. A market for emission trading shall be gradually built andlow carbon financial development shall be fostered.

The balance of payments shall be led to general equilibrium. Financial policies includinginterest rate, exchange rate and foreign exchange administration shall play an important rolein achieving the equilibrium in the balance of payments. Stronger support shall be given to

the implementation of the strategy of domestic demand expansion, in particular to increasedomestic consumption demand, creating a new round of economic growth by consumption,investment and export sustained in a balanced way. Changes in the growth pattern of foreigntrade shall be promoted, gradually remedying the trade imbalance. The balance of capitalinflows and outflows shall be strengthened in order to facilitate overseas investment by

enterprises and individuals.

Further reform shall be conducted in key areas of the financial industry. The profound hurdlescaused by relevant rules and procedures to financial development shall be gradually resolvedso that the market’s financial resources allocation function shall be given full play in such a

manner that will further the reform of market-based interest rate and foreign exchange rateformation mechanisms.

Great emphasis shall be given to financial innovation. Guided by the markets and aimed atenhancing financial service capabilities and efficiency, innovation in financial institutions andin product and service approach shall be encouraged and strengthened. Financial innovationshall be pushed forward by adjusting the role of regulators’ functions, nurturing institutional

investors and building a multi-layered financial market. Limitations of financial innovationshall be determined in a flexible manner and adapted over time, while the awareness of riskprevention shall be incorporated into the entire process of financial innovation.

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The role of financial markets in investment and financing shall be enhanced. By optimizingthe structure of investment and financing, allocation of capital resources shall be optimized.In addition, the range of financial and investment instruments offered by monetary markets

and capital markets shall be broadened, the development of financial derivatives marketspromoted, more investment channels created, and the safety, liquidity and profitability offinancial investment increased, all with a view to raising households’ property income.

The overall risk management capabilities of financial institutions shall be enhanced and theeffectiveness of financial supervision and regulation shall be enhanced continuously. The

“firewall” between the banking system and capital markets shall be built and improved toprevent risks from spreading. Activities of systemically important financial institutions shallbe regulated in such a manner that that they shall be prevented from becoming too big to fail.Rules governing information disclosure by financial institutions shall be further strengthened

to improve the quality of disclosure. Regulatory cooperation shall be reinforced andregulatory coordination mechanism shall be improved, with a view to constraining regulatoryarbitrage, continuously upgrading regulatory instruments and methods, boosting theeffectiveness of supervision and regulation, and facilitating oversight by the public.

The protection of financial consumers’ interests shall be strengthened. The lawful interests offinancial consumers including depositors, investors and insured persons shall be protected,

and the public awareness of modern financial product and services shall be enhanced throughpublicity campaign and education and information disclosure. Relevant risks shall beidentified and a tough stance in cracking down on any acts by financial institutions that harmthe interests of financial consumers including depositors, investors and insured persons shallbe taken.

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ChapterChapterChapterChapter IIIIIIII ImprovingImprovingImprovingImproving macromacromacromacro adjustmentadjustmentadjustmentadjustment andandandand controlcontrolcontrolcontrol andandandand facilitatingfacilitatingfacilitatingfacilitating steadysteadysteadysteady andandandand

soundsoundsoundsound economiceconomiceconomiceconomic developmentdevelopmentdevelopmentdevelopment

Financial macro adjustment and control shall be strengthened so as to maintain stable andrapid economic development. Balance between inflation expectation and economic structureadjustment shall be managed. The predictability, flexibility and effectiveness of policies shallbe enhanced, in order to ensure price stability and facilitate steady and sound economicdevelopment.

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SectionSectionSectionSection 1111 EstablishingEstablishingEstablishingEstablishing aaaa robustrobustrobustrobust financialfinancialfinancialfinancial macromacromacromacro prudentialprudentialprudentialprudential policypolicypolicypolicy frameworkframeworkframeworkframework

Drawing reference from international experience and taking into account China’s nationalconditions, the counter-cyclical macro prudential policy framework shall be further developedand improved in order to effectively prevent systemic financial risks and to maintain steadyand rapid financial and economic development.

Combining the control the total size of factors such as monetary credit and liquidity withmacro prudential management, financial institutions shall be guided and motivated to operate

in a stable manner, to take initiatives in adjusting credit extension and to improve riskprevention capabilities. Counter cyclical capital buffer and forward-looking provision shall beestablished and enhanced, and instruments such as leverage shall have a greater role to play.The monitoring and assessment framework for systemic financial risks shall be improved and

a forward-looking risk alert system shall be created. Research studies shall be conducted todevelop the risk assessment methods that shall be adopted by systemically important financialinstitutions, setting more stringent capital and liquidity requirements. Systemic risk resolutionmechanism and liquidation arrangements to be structured in layers shall be developed. Macro-and micro-prudential policies shall coordinate and complement with each other.

SectionSectionSectionSection 2222 EnhancingEnhancingEnhancingEnhancing thethethethe monetarymonetarymonetarymonetary policypolicypolicypolicy adjustmentadjustmentadjustmentadjustment andandandand controlcontrolcontrolcontrol

The monetary policy decision-making mechanism shall be further improved. The MonetaryPolicy Committee shall play an effective role in national macro adjustment and control andformulation and adjustment of the monetary policy. A multi-layered monetary policydecision-making advisory system shall be developed.

The mix of monetary policy objectives shall be optimized. Stronger emphasis shall be put on

price stability, coupled with a broader sense of overall price level stability. A balance shall bestruck among economic growth, price stability and financial risk prevention. The total volumeof monetary credit shall be properly controlled to maintain the overall funding provided to thereal economy at a reasonable level. While focusing on traditional intermediate objectives such

as monetary supply and volume of new loans, more reference shall be made to the overallfunding provided to the real economy to coin the monetary policy.

A solid monetary policy operating system shall be built. Market-based indirect controlmechanism shall be improved, gradually strengthening the function of price leverages such asinterest rate and exchange rate, and shifting monetary policy from volume-based control toprice-based control. The system of objectives, the mix of instruments and operating methods

of open market will be enhanced, with the open market operations playing a bigger role inguiding the interest rates of money market. Coordination between the instruments of deposit

17

reserve and open market shall be intensified. Meanwhile, focus will be put on the role ofrefinancing and rediscount to sustain economic restructuring, facilitate the development ofunder-served sectors, and prevent and mitigate financial risks. In accordance with economic

and financial trends, reasonable arrangements shall be made in respect of the mix, thestructure of maturities and extent of use of monetary policy instruments, coordination amongthese instruments and liquidity management shall be strengthened, and the increase ofmonetary loans shall be adjusted.

SectionSectionSectionSection 3333 BolsteringBolsteringBolsteringBolstering financialfinancialfinancialfinancial supportsupportsupportsupport totototo under-servedunder-servedunder-servedunder-served sectorssectorssectorssectors

The implementation of credit policy shall be enhanced, the effects of adjustment and controlof credit policy improved, and the credit structure further optimized. In addition, consumptioncredit shall be developed, domestic demand expanded and the equilibrium in the balance ofpayments facilitated. Greater financial supports shall be directed to modern service sectors,

technology-related innovative sectors and strategic emerging sectors such as energy efficiencyindustry, while strengthened financial services will be provided to employment andreemployment, education aid and poverty eradication programs, in order to ensure balanceddevelopment of regional economy. Strict restrictions will be set on loans for industries withhigh energy consumption, high pollution and over capacity, so as to support low carboneconomic development.

Financial reform in rural areas shall be deepened and gaps in the availability of financialservices in rural areas shall be filled. Based on the objective of serving the agriculturalactivities, rural areas and farmers, full use shall be made of the policy, commercial andcooperative funding in order to build a multi-layered diversified rural financial service systemwith appropriate competition. Financial institutions shall be encouraged to actively explore

possible approaches in serving agricultural activities, rural areas and farmers and bolster thesupport provided thereto. In addition, channels and patterns through and under which stock,bonds and futures markets can serve the agricultural activities, rural areas and farmers shall beexplored, and agricultural insurance regime shall be improved. More favorable fiscal policy

shall be adopted to support agricultural activities, rural areas and farmers.

Financing difficulties of small and micro enterprises shall be addressing and resolved.Financial institutions are encouraged to offer innovative financial products and adoptinnovative credit model in respect of small and micro enterprises. Policy support anddifferentiated regulatory measures in terms of fiscal policy, guarantees, bad debts setoff, riskcompensation and insurance shall be reinforced to motivate financial institutions to serve

these enterprises. Capital market system shall be improved, and access to the SME Board, theGEB and OTC markets by small and micro enterprises shall be facilitated. Venture capitalfirms and equity investment firms are encouraged to invest in small and micro enterprises,developing financing tools such as collective bonds of SMEs and private bonds of SMEs in

18

order to expand financing channels.

SectionSectionSectionSection 4444 FurtherFurtherFurtherFurther enhancingenhancingenhancingenhancing thethethethe coordinationcoordinationcoordinationcoordination amongamongamongamong macro-economicmacro-economicmacro-economicmacro-economic policiespoliciespoliciespolicies

Fiscal policy and monetary policy shall be better coordinated. The respective functions offiscal policy and monetary policy shall be clearly identified, the cooperation mechanismbetween the finance authorities and the central bank shall be reinforced, and a “firewall” shallbe built to prevent fiscal and financial risks from spreading. Fiscal policy and monetary policyshall be coordinated in a rational and justified manner and the relations among fiscal revenueand expenditure, Treasury bond issuance, treasury cash management and monetary policy

operations shall be dealt with properly.

Coordination between financial regulation and supervision and monetary policy shall bestrengthened. Relevant policies and regulations shall be improved and various mid- andlong-term plannings in connection with the development of the financial system shall be

prepared in synergy. The respective functions of regulatory policy and monetary policy shallbe specified and the information exchange and sharing between regulators and the centralbank shall be further enhanced, guiding the financial industry to strike a balance betweensustaining economic development and preventing financial risks.

19

ColumnColumnColumnColumn 1:1:1:1: FinancialFinancialFinancialFinancial macromacromacromacro prudentialprudentialprudentialprudential policypolicypolicypolicy frameworkframeworkframeworkframework

After the eruption of global financial crisis in 2008, the creation of a financial macro prudentialpolicy framework became a priority of international financial reform. Macro prudential policy

framework refers to relevant policies with the objective of preventing systemic financial risksthrough the application of prudential instruments and the support of necessary governancestructure. Macro prudential policies are macro-level counter-cyclical policies with the purposeto better prevent and manage cross-temporal and cross-industry risks of the entire financial

system, resolve the problem of pro-cyclical and systemic risk concentration, and compensatefor the inadequacies of micro-prudential regulation and conventional monetary policyinstruments in preventing systemic financial risks. Macro prudential policy framework is adynamic framework that came into shape as international financial organizations and relevantcountries reviewed and improved some generally recognized policy instruments after the

eruption of global financial crisis. This framework primarily involves prudential requirementson bank capital, liquidity, leverage ratio and provision, additional requirements on the liquidityand capital of systemically important financial institutions, reform of accounting standards,credit rating and derivatives trading and clearing systems, as well as oversight on "shadowbanking". China attaches great importance to strengthening macro prudential oversight and hasmade positive explorations in the adoption and execution of macro prudential policies. For

instance, China has raised requirements on minimum capital ratio and asset quality,implemented measures for the dynamic adjustment of differentiated reserve funds, explored theestablishment of counter-cyclical capital buffer, adjusted mortgage loan down paymentproportion according to real estate price fluctuations, and moved closer towards international

standards in terms of accounting standards and the introduction of central counterparty, etc. Inthe next step of work, China will draw reference from effective international practices andcontinuously develop and improve macro prudential policy framework in light of China'snational conditions.

20

ChapterChapterChapterChapter IIIIIIIIIIII OptimizingOptimizingOptimizingOptimizing thethethethe deploymentdeploymentdeploymentdeployment andandandand establishingestablishingestablishingestablishing thethethethe systemsystemsystemsystem ofofofof modernmodernmodernmodern

financialfinancialfinancialfinancial organizationorganizationorganizationorganization

The deployment of financial institutions shall be optimized both from industry and regionalperspectives, modern financial organization system shall be established and improved,financial innovative capabilities and service level shall be raised, and the overall strength,international competitiveness and risk resilience of the financial industry shall be significantlyboosted.

SectionSectionSectionSection 1111 ImprovingImprovingImprovingImproving thethethethe deploymentdeploymentdeploymentdeployment ofofofof thethethethe bankingbankingbankingbanking industryindustryindustryindustry

A modern banking industry system with robust functions, efficient service, orderlycompetition, proper profitability and secure and sound operation shall be developed. Thebanking industry shall be structured in layers, equipped with various types of financialinstitutions, including policy banks, large commercial banks, national joint stock commercial

banks, regional small and medium banks and other non-bank financial institutions, to bedeployed in a rational manner. The development of a community financial serviceorganization system shall be sped up, and the rural financial organization system shall beimproved. The internal control mechanism of the banking industry centering on capitalconstraints and risk management shall be reinforced to enhance the operation andmanagement of the banking industry.

Policy banks and commercial banks are designed to develop in such a manner that they enjoya coordinated, complementary and mutually beneficial relationship. Policy banks willestablish and improve governance mechanism, sticking to the operation of policy business asits core business, developing proprietary business in a prudent manner and strictly complyingwith the scope of business intended. Policy business and proprietary business should be

clearly segregated through separate account management and classified accounting methods,so as to prevent moral hazards. Necessary fiscal support shall be given to policy business,while strict capital constraints and prudential supervision shall be adopted in regard toproprietary business.

Large commercial banks with good brand image and international competitiveness shall beestablished. Small and medium sized commercial banks are encouraged to determine theirrespective market positioning in a rational manner and to improve the sustainabledevelopment capability and competitiveness. The establishment of a community financialservice organization system shall be accelerated, motivating regional small and medium sizedbanks to attach more importance to financial services offered to community residents and

small and micro enterprises.

21

The reform of rural credit cooperatives shall be deepened continuously, reinforcing its role asa major supporting force for rural development. Meanwhile, classified guidance shall becarried out, the reform of property right system promoted, capital strength reinforced,

operation and management focused down to the bottom, long-term stability of legalpersonality at county level maintained and administrative intervention reduced. Novelty ruralfinancial institutions including village banks shall be developed and rural credit cooperativesdevelopment shall be regulated, promoting appropriate competition among county-levelfinancial institutions.

The financial service functions of the banking industry shall be fostered, urging financialinstitutions in the industry to provide financial services in accordance with the developmentof real economy. More professional, specialized and sophisticated services shall be provided,featuring stronger brand image, promoting the quality of basic financial services and

improving the availability of financial services.

SectionSectionSectionSection 2222 FacilitatingFacilitatingFacilitatingFacilitating thethethethe regulatedregulatedregulatedregulated developmentdevelopmentdevelopmentdevelopment ofofofof financialfinancialfinancialfinancial institutionsinstitutionsinstitutionsinstitutions inininin thethethethe

securitiessecuritiessecuritiessecurities industryindustryindustryindustry

Efforts shall be dedicated to enhancing the governance structure and internal controlmechanisms of firms that operate securities- and futures-related business, service providersand asset management firms. Innovation in organization, business and products shall be

encouraged, and development capabilities and professional service level of firms that areengaged in securities-related activities shall be further regulated in a continuous manner.

Securities firms shall be actively supported in developing their expertise and strength. Theyshall be encouraged to carry out innovative activities and strengthen core competitiveness,relying on compliant operations and risk control, and guided by market demand. The

regulations relating to securities lending and margin trading by securities firms and rulesthereunder shall be strengthened, gradually expanding the scope of underlying securities andtimely launching and standardizing the development of refinancing. Securities firms shall beencouraged to increase their strength through listing, and to provide quality service for M&A

and restructuring activities of enterprises.

Futures firms shall be encouraged to further increase their size and strength through M&Aand restructuring, as well as capital increase and issuance of new shares. Quality futures firmsshall be urged to develop overseas futures brokerage business. In assisting real economy to“go global”, these firms will also gradually enhance their own international operationcapabilities.

Intermediaries of the securities and futures markets shall operate in such a robust manner thatthey can assume their responsibilities, develop in an orderly manner and play their due role ofoversight and restraints in the process of sound market development.

22

Asset management firms shall be developed vigorously and the base of institutional investorsshall be expanded and diversified. Sound development of venture capital firms and equitycapital firms shall be fostered, and private fund firms shall be developed in a regulated

manner. Financial institutions including securities firms and fund management firms areencouraged to continuously expand assets management business. Research on promotingfutures firms to conduct asset management business shall be conducted in a timely fashion.Meanwhile, research on expanding the business scope of public fund management firms shallbe launched. Medium and long-term funds including social security funds and annuity of

enterprises shall be further encouraged to participate in capital markets.

SectionSectionSectionSection 3333 EncouragingEncouragingEncouragingEncouraging innovativeinnovativeinnovativeinnovative developmentdevelopmentdevelopmentdevelopment ofofofof firmsfirmsfirmsfirms inininin thethethethe insuranceinsuranceinsuranceinsurance industryindustryindustryindustry

In compliance with economic and social development needs and market demand, amodernized insurance industry shall be established, equipped with a robust market system,

extensive service areas, standardized and trustworthy operation, effective risk prevention andstrong overall competitiveness, striking a balance among the development speed, quality andprofitability.

Focus shall be put on optimizing the organization system of the insurance industry,establishing a dynamic market with diversified market participant base and orderlycompetition. Insurance groups shall be urged to further reinforce their internal governance,

strengthen resource integration, promote business synergy in reliance of their primaryinsurance business, and increase operation transparency. Insurance companies shall beencouraged to specialize in pension, health, liability, automobile and agricultural insurance,exploring the development of specialized credit insurance firms and fostering differentiatedcompetitive edges of specialized insurance companies. Support shall be given to the

innovative development of small and medium sized insurance companies, so that the lattershall develop their respective competitive edges and unique expertise. Regulated developmentof mutual insurance organizations shall be ensured, captive insurance companies shall bepiloted. Management rules and procedures of insurance assets management companies shall

be formulated in compliance with applicable regulations. Qualified small and medium sizedinsurance companies shall be encouraged to set up market-based insurance asset managementcompanies that have robust corporate governance system and reasonable equity structure aswell as specialized insurance asset management firms. Insurance intermediaries shall beencouraged to develop their expertise, pushing forward the development of captive insuranceagencies and insurance sales companies. Qualified state-owned capital, private capital and

overseas capital shall be encouraged to invest in insurance companies.

23

SectionSectionSectionSection 4444 ContinuingContinuingContinuingContinuing totototo drivedrivedrivedrive forwardforwardforwardforward thethethethe pilotpilotpilotpilot programprogramprogramprogram ofofofof financialfinancialfinancialfinancial institutionsinstitutionsinstitutionsinstitutions’’’’

offerofferofferoffer ofofofof lineslineslineslines ofofofof businessbusinessbusinessbusiness acrossacrossacrossacross multiplemultiplemultiplemultiple financialfinancialfinancialfinancial sectorssectorssectorssectors inininin anananan activeactiveactiveactive andandandand

stablestablestablestable mannermannermannermanner

Qualified financial institutions shall be guided to actively carry out pilot projects of offer oflines of business across multiple financial sectors based on clearly defined relevant operationstrategy and effective risk prevention, boosting the quality and level of their offer of a fullrange of financial services. Pilot financial institutions shall be guided to elect to offer a fullrange of financial services where their risk control capabilities and competitive edges so

permit. Further reform in CITIC Group and China Everbright Group shall be facilitated sothat they shall transform into genuinely standardized financial holdings companies.

Supervision on a consolidated basis and overall risk management of financial institutions thatoffer lines of business across multiple sectors shall be strengthened. Sound risk surveillance

system and effective “firewall” arrangements shall be established and applied to thosefinancial institutions that offer lines of business across multiple sectors, specifying the risklimitation and risk tolerance of various business lines concerned and adopting effective riskisolation measures.

ChapterChapterChapterChapter IVIVIVIV EncouragingEncouragingEncouragingEncouraging innovation,innovation,innovation,innovation, speedingspeedingspeedingspeeding upupupup thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof aaaa multi-layeredmulti-layeredmulti-layeredmulti-layered

financialfinancialfinancialfinancial marketmarketmarketmarket systemsystemsystemsystem

Balanced development of financial markets shall be promoted, considerably increasing theshare of direct financing. Focus shall be put on the innovation of financial products,continuously widening the range of products and optimizing product structure. Marketsystems and infrastructure development shall be strengthened and market operationmechanisms enhanced. In addition, the orderly cash flow between different markets shall be

fostered, and the linkage and efficiency of markets shall be strengthened. A financial marketsystem with proper layers and mutually complementary functions will be graduallyestablished, playing a more effective role in serving the real economy.

SectionSectionSectionSection 1111 FocusFocusFocusFocus onononon stockstockstockstock marketmarketmarketmarket improvementimprovementimprovementimprovement

The Main Boards and the SME Board shall develop in a regulated manner. Access by smalland medium-sized enterprises to capital markets shall be facilitated so that they can developthrough funds raised therefrom. The GEB markets shall be further developed, boostingoperating quality and efficiency as well as supporting innovative economic development. Thescope of the pilot program of the Stock Transfer Agent System (STAS) shall be expanded,speeding up the development of national OTC markets under unified supervision. Further

research on the International Board shall be conducted. Board transfer mechanism anddelisting mechanism between different layers of the market shall undergo further

24

enhancement, while markets at different layers will be better linked, forming a marketenvironment that operates with competition and elimination. The market-based reform ofstock issue system shall be further deepened, exploring innovative approach in stock offering,

further reducing the role of administrative review and approval, reinforcing capital, marketand integrity constraints, improving price inquiry in new stock issue and rendering pricingmore rational. Research on preferred stock shall be made. A sound delisting system shall beset up to ensure market competition and selection, continuously enhance the quality of listedcompanies and facilitate the balanced development of primary and secondary markets.

Furthermore, listed companies’ refinancing arrangement and investor return mechanism shallbe further improved, with an aim to increase cash dividend distribution.

SectionSectionSectionSection 2222 ActivelyActivelyActivelyActively developingdevelopingdevelopingdeveloping thethethethe bondbondbondbond marketmarketmarketmarket

Rules governing the supervisions of bond issuance shall be improved, the coordination among

different authorities shall be coordinated, the requirements for information disclosure shall betoughened, and supervisory responsibilities shall be duly performed. Size of the bond marketshall be expanded steadily, product innovation and diversification boosted and marketinfrastructure reinforced. Sticking to the market-based reform, business integrity shall bepromoted, market constrains and risk sharing mechanism reinforced, and transparency ofmarket operation raised, so as to create a favorable policy environment for the development of

bond markets.

SectionSectionSectionSection 3333 ContinuingContinuingContinuingContinuing totototo developdevelopdevelopdevelop monetary,monetary,monetary,monetary, foreignforeignforeignforeign exchangeexchangeexchangeexchange andandandand goldgoldgoldgold marketsmarketsmarketsmarkets

Balanced and sound development of various submarkets of the monetary market shall bedriven forward vigorously, further enhancing the market infrastructure, improvingmanagement system of monetary market, optimizing the structure of institutional investors

and fostering the development of the intermediaries. Innovative monetary market instrumentsshall be encouraged and the market depth and width shall be expanded, boosting the liquiditymanagement function of the monetary market. Foreign exchange markets shall achieve steadyprogress with a wider range of products and better trading mechanism. More small and

medium sized financial institutions shall be encouraged to participate in foreign exchangemarkets, propelling the opening up of such markets. The steady and standard development ofthe gold market shall be promoted, improving the service system, and perfecting thewarehousing, transportation, delivery and gold account service systems.

SectionSectionSectionSection 4444 ProactivelyProactivelyProactivelyProactively developingdevelopingdevelopingdeveloping thethethethe insuranceinsuranceinsuranceinsurance marketmarketmarketmarket

Greater play shall be given to the service functions of insurance, increasingly broadening the

range of insurance product offer, and expanding the scope of insurance service. Life insurance,health insurance, pension insurance and corporate annuity business shall be developedvigorously, together with insurance businesses relating to housing and automobiles. Pilot

25

program of income tax-deferred pension insurance shall be implemented. The experience andpractices of commercial insurance’s participation in social security and healthcare systemsshall be reviewed and popularized. Liability insurance closely related to public interests such

as environmental pollution and public security shall be expedited. Catastrophe insurancesystem supported by national policies shall be established, with sound mechanisms forcatastrophe risk diversification, transfer and compensation. Insurance service level shall besubstantially raised, with the insurance market order regulated and outstanding issues such asmisleading marketing information and hurdles to payment of claims resolved. Innovation in

asset management products shall be encouraged and insurance funds shall be steadily investedinto real estate and equity of unlisted enterprises. Insurance funds shall be encouraged toexpand investment channels and to invest in the equities of insurance enterprises,non-insurance financial enterprises and insurance-related enterprises in the areas of pension,

healthcare and automobile service, to the extent that risk remains controllable.

SectionSectionSectionSection 5555 DevelopingDevelopingDevelopingDeveloping thethethethe futuresfuturesfuturesfutures andandandand financialfinancialfinancialfinancial derivativesderivativesderivativesderivatives marketmarketmarketmarket

Transition of the futures market from quantitative expansion to qualitative improvement shallbe driven forward. Commodities futures market shall develop in a steady manner, continuingto expedite the listing of those commodities futures which are essential to economicdevelopment and for which necessary market conditions are available. The development ofcommodity index futures, commodity options, crude oil futures and carbon emission creditfutures shall be promoted. The development of financial futures market shall continue to bestrengthened, and on the basis of steady operation of stock index futures, Treasury bondfutures shall be launched when appropriate. Other equity financial futures and options,together with financial derivatives such as interest rate and foreign exchange futures andoptions, shall be developed proactively and steadily.Institutional innovation and product innovation in financial derivative market shall beproactively and steadily promoted, and the supervisory and regulatory systems for financialderivatives shall be improved. The development of institutional investors shall bestrengthened and the base of participants of financial derivatives market shall be expanded.

Asset securitization for the convenience of market entities shall be steadily advanced. Fundraising by market participants and asset management shall be facilitated. Exploration ofinter-bank credit risk mitigation instruments shall continue. OTC credit derivatives marketsshall be developed in a stable manner on the premise of enhanced management and riskcontrol, with the objective to gradually develop effective market pricing and risk

management mechanism.

26

ColumnColumnColumnColumn 2:2:2:2: Inter-bankInter-bankInter-bankInter-bank marketmarketmarketmarket creditcreditcreditcredit riskriskriskrisk mitigationmitigationmitigationmitigation instrumentsinstrumentsinstrumentsinstruments

Inter-bank market credit risk mitigation (CRM) instrument is a basic credit derivative productdesigned to manage credit risks for the development of China's inter-bank market. Inter-bankmarket has initially established a "2+N" product innovation framework with credit riskmitigation agreement and credit risk mitigation warrants at the core. Of which, credit riskmitigation agreement (CRMA) is a financial contract under which credit protection buyer pays

credit protection fees to credit protection seller for the seller to provide the buyer with creditrisk protection for the subject obligations. Credit risk mitigation warrant (CRMW) is created bya third party aside from the subject entity as a valuable certificate for the risk protection ofholders. It is a tradable, one-to-multiple, standardized and low-leverage product.

Different from credit default swap (CDS) that is commonly adopted internationally, credit riskmitigation instrument is characterized by the principles of "serving actual needs, simplicity,transparency and controlled leverage". CRMW is a highly standardized credit derivativeproduct under "centralized registration, custody and clearing". It is an innovative creditderivative product developed by China's Inter-bank Market Traders Association on the basis oftaking stock of the lessons of global financial crisis and in light of China's actual national

conditions. The launch of credit risk mitigation instrument is conducive to improving creditrisk sharing mechanism and will have a positive and far-reaching influence on the healthydevelopment of financial market.

27

ChapterChapterChapterChapter VVVV ContinuouslyContinuouslyContinuouslyContinuously improvingimprovingimprovingimproving financialfinancialfinancialfinancial operationaloperationaloperationaloperational mechanismmechanismmechanismmechanism throughthroughthroughthrough reformreformreformreform

Reform in key financial areas and critical processes shall be driven forward in line with

market-oriented direction. Financial operation mechanisms shall be continuously improved,inspiring the vitality of market entities, and giving full play to the fundamental role of themarket in the allocation of financial resources. The areas and boundaries of government roleshall be further identified, and government intervention in micro-level financial activitiesshall be reduced.

SectionSectionSectionSection 1111 SteadilySteadilySteadilySteadily advancingadvancingadvancingadvancing thethethethe market-orientedmarket-orientedmarket-orientedmarket-oriented reformreformreformreform ofofofof interestinterestinterestinterest raterateraterate

The development of the benchmark interest rate system of the financial market shall beexpedited, giving further play to the benchmark role of the Shanghai inter-bank offered rate(SHIBOR). The application of the SHIBOR in market-based products shall be expanded.Mid-and long-term market yield curves shall be improved to provide effective benchmarks

for product pricing by financial institutions. Interest rate shall be rendered furthermarket-based according to the level of readiness and through such means as deregulatingprices of alternative financial products. Central bank interest rate regulation system shallcontinue to be improved, mechanisms that enable interest rate to bring about effects shall beenhanced, financial institutions shall be guided to continuously increase their risk-basedpricing capabilities, and self-regulatory mechanism for interest rate pricing based on

Shanghai inter-bank offered rate shall be established, all with an aim to ensure that themarket-based reform of interest rate shall be built on the principles of “deregulation,formation and adjustability”.

SectionSectionSectionSection 2222 ImprovingImprovingImprovingImproving thethethethe RenminbiRenminbiRenminbiRenminbi exchangeexchangeexchangeexchange raterateraterate formationformationformationformation mechanismmechanismmechanismmechanism

The reform of the formation mechanism of Renminbi exchange rate shall be conducted in a

proactive, controllable and gradual manner. The market-based managed floating exchangerate regime that operates with reference to a basket of currencies shall be improved. Thetwo-way floating flexibility of the Renminbi exchange rate shall be enhanced, so as to ensurethe basic stability of Renminbi exchange rate at reasonable equilibrium. The foreign

exchange market shall be developed in a coordinated manner, and the range of offer ofexchange rate risk management instruments shall be broadened. Research on theestablishment of a two-way direct exchange rate formation mechanism between Renminbiand emerging market currencies shall be furthered. The listing of Renminbi's exchange rateagainst currencies of emerging market economies and neighboring countries on the inter-bankforeign exchange market shall be promoted actively.

28

SectionSectionSectionSection 3333 GraduallyGraduallyGraduallyGradually achievingachievingachievingachieving convertibilityconvertibilityconvertibilityconvertibility ofofofof RenminbiRenminbiRenminbiRenminbi underunderunderunder capitalcapitalcapitalcapital accountsaccountsaccountsaccounts

The control on cross-border capital flow shall be further relaxed in accordance with the

overall principles of "emphasizing priorities, overall progress, market-oriented approach,reducing distortions, proactive exploration and leaving leeway", improving the system for theadministration of capital inflow and outflow equilibrium, perfecting external debt claims andliabilities administration and steadily advancing Renminbi's convertibility under capitalaccounts. General convertibility shall be permitted for direct investment with the purpose offacilitating direct investment. Convertibility of securities investment shall be further

increased, with the emphasis put on opening up domestic capital market and expandingoverseas securities investment. Facilitating cross border financing, the reform of foreignexchange administration in connection with credit business shall be expedited, the reform ofexternal debt management system shall be deepened, and the management and surveillance of

external debt claims shall be regulated. Aiming at increasing individuals’ discretion on theuse of foreign exchange, cross-border transactions by individuals under other capital accountsshall be further opened.

SectionSectionSectionSection 4444 FurtherFurtherFurtherFurther improvingimprovingimprovingimproving thethethethe operationoperationoperationoperation andandandand managementmanagementmanagementmanagement ofofofof foreignforeignforeignforeign exchangeexchangeexchangeexchange

Channels and means for the multi-level use of foreign exchange reserve shall be proactivelyexplored and expanded, and the operation and management mechanism of foreign exchange

shall be improved. Further research and assessment of the risk tolerance resulting from theoperation of foreign exchange reserve shall be conducted. Research on various investmentareas, products and instruments shall be intensified. Long-term strategic investmentphilosophies shall be adhered to, adopting a scientific and effective investment benchmarkapproach. Diversified investment carried out on the basis of prudent assessment shall be

steadily advanced, optimizing the allocation of monetary assets, increasing investment return,and achieving the targets of foreign exchange reserve security, liquidity and valuemaintenance and appreciation. Methods for the use of foreign exchange reserve shall beinnovated in order to better support national development strategies and serve national

sustainable development objectives.

SectionSectionSectionSection 5555 ContinuingContinuingContinuingContinuing totototo deependeependeependeepen thethethethe reformreformreformreform ofofofof financialfinancialfinancialfinancial institutionsinstitutionsinstitutionsinstitutions

The reform of large financial institutions shall continue to be reformed, further improvingcorporate governance, clarifying the boundary between shareholder meeting, board ofdirectors, board of supervisors and senior management, and developing effective mechanismsfor decision-making, implementation and check and balance. The equity diversification of

financial institutions shall be promoted. A review shall be conducted in respect of thereasonable shareholding by the central government in the equity of state-controlled financialinstitutions and the improvement of the system for the administration of state-owned financial

29

asset. An effective talent screening and recruitment mechanism shall be established, and thescientific and reasonable incentive and restraint mechanism shall be improved. Thecommercial reform of China Development Bank shall continue, and issues such as bond

credit, fund sources and regulatory standards shall be properly addressed. Relevant reforms atthe China Import and Export Bank, the China Agricultural Development Bank and the ChinaExport Credit Insurance Co., Ltd. shall be driven forward, with their governance frameworkimproved. The commercial transformation of financial asset management firms shall bepromoted. The corporate governance of insurance institutions shall be improved, advancing

the stockholding reform of state-owned insurance companies continuously. Qualifiedinsurance companies shall be encouraged to go public.

SectionSectionSectionSection 6666 EncouragingEncouragingEncouragingEncouraging andandandand guidingguidingguidingguiding thethethethe entryentryentryentry ofofofof privateprivateprivateprivate capitalcapitalcapitalcapital intointointointo financialfinancialfinancialfinancial serviceserviceserviceservice

areaareaareaarea

Under the precondition of risk controllability, private capital shall be encouraged and guidedto participate in the restructuring and capital increase of financial institutions such as banks,securities firms and insurance firms. Support shall be given to private capital in respect totheir participation in the establishment of novelty rural financial institutions and small-creditloan companies such as village and town banks, loan companies, rural capital mutualcooperatives. The participation of private capital in financial services shall be further

expanded, and capabilities of providing financial services to agricultural activities, rural areasand farmers and small businesses shall be further strengthened on the precondition ofenhancing effective regulation, promoting standardized operation and preventing financialrisks.

30

ChapterChapterChapterChapter VIVIVIVI DeepeningDeepeningDeepeningDeepening thethethethe opening-upopening-upopening-upopening-up ofofofof thethethethe financialfinancialfinancialfinancial sectorsectorsectorsector forforforfor mutualmutualmutualmutual benefitbenefitbenefitbenefit andandandand

win-winwin-winwin-winwin-win resultresultresultresult

Domestic development and international cooperation shall be coordinated, adhering to theprinciple of "prioritizing domestic needs and dealing with competition and cooperation forgradual, safe and controllable progress with mutual benefit and win-win result", balancing"bringing in" with "going global", and deepening international cooperation of the financialsector. The opportunity, intensity and pace of opening-up shall be addressed properly, so as tomake the opening-up of financial sector compatible with China's economic development level,

market sophistication and financial regulation capabilities.

SectionSectionSectionSection 1111 IncreasingIncreasingIncreasingIncreasing thethethethe levellevellevellevel ofofofof opening-upopening-upopening-upopening-up forforforfor financialfinancialfinancialfinancial sectorsectorsectorsector

The corporate governance of China's financial sector and soundness standards shall beimproved in reference to internationally advanced concepts, experience and norms of

financial administration. Financial institutions shall be encouraged to conduct in-depthcooperation with overseas institutions. Foreign low-interest loans and internationalcommercial loans shall be effectively utilized and the management of external debts shall beimproved. The pace and priority of the improvement of Renminbi exchange rate formationmechanism, Renminbi capital account convertibility and the expansion of Renminbi'scross-border use shall be addressed properly. The opening-up of money market, capital

market, foreign exchange market and gold market shall be further advanced.

Relevant systems of “going global” for financial institutions shall be improved, guidingfinancial institutions to adopt effective strategies for overseas development. The developmentof reserve of pools of professionals with international experience shall be strengthened, andsteps shall be taken to develop China’s large multinational financial institutions gradually.

Financial institutions shall be encouraged to steadily expand international businesses,increase the level of international operation, expedite the development of internationalfinancial service system conducive to the upgrade of export products and the “going global”of enterprises. The regulation of overseas subsidiaries of financial institutions shall be

improved. The establishment of a risk resolution mechanism of cross-border financialinstitutions shall be facilitated.

SectionSectionSectionSection 2222 ExpandingExpandingExpandingExpanding Renminbi'sRenminbi'sRenminbi'sRenminbi's cross-bordercross-bordercross-bordercross-border useuseuseuse

Renminbi's cross-border use shall be expedited in accordance with the principle of meetingactual needs, giving priority to regions with less difficulties, enhancing surveillance andensuring risk controllability. Cross-border settlement of Renminbi shall be conducted

properly. Renminbi settlement business for cross-border direct investment shall be expandedsteadily, supporting domestic banking financial institutions to conduct Renminbi loan

31

business activities in respect of overseas projects, gradually conducting individual Renminbicross-border settlement business, exploring the establishment of a framework for theadministration of Renminbi's external credits and debts, and continuously expanding the

channels of the use of Renminbi funds by overseas institutions. The issuance of Renminbibonds by domestic institutions in Hong Kong shall be promoted, and overseas institutionsshall be further encouraged to issue Renminbi bonds in China. Relevant countries shall besupported to include Renminbi into their international reserve. The statistical and monitoringmechanisms for Renminbi cross-border and overseas flow shall be improved, and a risk

prevention and resolution mechanism shall be established.

SectionSectionSectionSection 3333 DeepeningDeepeningDeepeningDeepening financialfinancialfinancialfinancial cooperationcooperationcooperationcooperation betweenbetweenbetweenbetweenMainlandMainlandMainlandMainland ChinaChinaChinaChina andandandand HongHongHongHong Kong,Kong,Kong,Kong,

MacauMacauMacauMacau andandandand TaiwanTaiwanTaiwanTaiwan

The development of Shanghai as an international financial center shall be accelerated, and

financial cooperation between Shanghai and Hong Kong shall be enhanced. The developmentof a financial cooperation region centered upon Hong Kong's financial system and supportedby the financial resources and services in cities of the Pearl River Delta shall be supported.Hong Kong shall be supported to become an offshore Renminbi transaction center andinternational asset management center and Hong Kong's status as an international financialcenter shall be consolidated. A mechanism for closer financial cooperation between

Guangdong Province, Hong Kong and Macau shall be established to deepen cooperationamong Guangdong Province, Hong Kong and Macau in areas of market, institutions,transactions, regulation and intelligence. Cross-straits financial cooperation shall bereinforced and the establishment of a cross-straits monetary settlement mechanism to beoperated in an appropriate manner shall be facilitated, and the development of cross-straits

regional financial service center in Xiamen City shall be expedited.

SectionSectionSectionSection 4444 EnhancingEnhancingEnhancingEnhancing internationalinternationalinternationalinternational andandandand regionalregionalregionalregional financialfinancialfinancialfinancial cooperationcooperationcooperationcooperation

China shall participate in global economic governance proactively, deepening bilateral andmultilateral financial policy dialogue and cooperation and enhancing macroeconomic and

financial policy coordination with major economies. The reform of international financialsystem shall be proactively advanced and the reasonable development of internationalmonetary system shall be promoted. China shall also participate actively in the revision anddevelopment of financial standards led by international organizations such as the FinancialStability Board and the Basel Committee on Banking Supervision, and shall play a greaterrole in international economic and financial organizations. Multilateral financial and

monetary cooperation shall be deepened, guiding and promoting regional financialcooperation. Cooperation with overseas central banks and regulatory authorities shall beconsolidated and information sharing mechanism shall be improved.

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ColumnColumnColumnColumn 3:3:3:3: Cross-borderCross-borderCross-borderCross-border tradetradetradetrade andandandand investmentinvestmentinvestmentinvestment settledsettledsettledsettled inininin RenminbiRenminbiRenminbiRenminbi

Under the impact of global financial crisis, major international settlement currencies such asthe US dollar and the euro have experienced significant fluctuations. Enterprises in China andneighboring countries and regions are confronted with significant risks of exchange ratefluctuations in trade settlement using a third country's currency. As a result, many of theseenterprises wish to use Renminbi for trade settlement. April 2009, the State Council decided to

conduct a pilot program of Renminbi settlement for cross-border trade in ShanghaiMunicipality and four cities of Guangdong Province, and such pilot program was officiallylaunched in July 2009. In June 2010, the limitation on the scope of overseas territories waseliminated and it was made clear that the business scope covers cross-border trade in goods and

services and Renminbi settlement in other current accounts. In August 2011, the scope ofdomestic territories for cross-border trade settlement in Renminbi expanded to a nationwidescale. By the end of 2011, nationwide cumulative amountsettled in Renminbi for cross-bordertradeswas RMB 2.6 trillion yuan.

In order to coordinate with the pilot program of cross-border Renminbi settlement and expandthe cross-border use of Renminbi, the People's Bank of China hadRenminbi settlement

businesseslaunched for cross-border investment and financing. On the basis of individual cases,in 2011, the People's Bank of China clearly defined its policies on overseas direct investment,foreign direct investment and overseas project financing, with cross-border Renminbibusinesses extending from current account such as trade to capital account. In 2011, Renminbioutbound direct investment settlement reached a cumulative value of RMB 20.1 billion yuan

and foreign direct investment settlement amounted to RMB 90.7 billion yuan.

During the initial period for the pilot program of Renminbi settlement for cross-border trade,the backflow of Renminbi used to be subject to limited channels and outflow was predominant.As the amount of overseas Renminbi remaining in inventory increased in a gradual manner and

with the stable development of Hong Kong's offshore Renminbi transaction center, there hasbeen a growing demand for the backflow of overseas Renminbi and backflow channels such asinvestment made by overseas investors in China and inter-investment-bank bond market for“three categories of overseas institutions” (overseas central banks or monetary authorities,Hong Kong and Macau’s Renminbi clearing banks, and overseas participating banks forRenminbi settlement in cross-border trade) gradually took shape. These developments mark the

preliminary establishment of the benign cycle of Renminbi’s cross-border flow.

33

ChapterChapterChapterChapter VIIVIIVIIVII EnhancingEnhancingEnhancingEnhancing regulationregulationregulationregulation forforforfor financialfinancialfinancialfinancial stabilitystabilitystabilitystability andandandand securitysecuritysecuritysecurity

The eternal theme of preventing and resolving financial risks shall be adhered to. The level of

risk management for financial institutions shall be enhanced, strengthening the developmentof financial supervisory and regulatory capabilities to avoid regulatory gaps and mistakes,and effectively preventing interaction between economic and financial risks, the mutualtransmission of financial and fiscal risks, as well as the spreading of external risks to China.Latent risks shall be proactively and prudently mitigated, keeping the bottom line ofpreventing systemic and regional financial risks.

SectionSectionSectionSection 1111 ContinuingContinuingContinuingContinuing totototo enhanceenhanceenhanceenhance financialfinancialfinancialfinancial regulationregulationregulationregulation

The banking sector shall proactively and prudently advance the implementation of newregulatory standards, continuously optimize the system of regulatory instruments andindicators, and effectively enhance the banking sector's capabilities of risk identification,

measurement, evaluation, monitoring, control and warning. The requirement of dynamiccapital adequacy ratio shall be adhered to, with the leverage level effectively controlled, theregulatory requirements on loan provision ratio and provision coverage ratio strengthened,and liquidity risk regulation continuously improved and enhanced. Regulation of commercialbanks classified by capital adequacy ratio shall be implemented. Regulatory requirements onthe adequacy ratio of systemically important banks shall be increased, and the establishment

of risk measurement and information management systems associated with theimplementation of new capital agreement shall be facilitated. Regulation of financial groupson a consolidated basis shall be enhanced. Regulation of the shareholders and actualcontrollers of financial institutions shall be stepped up. Wealth management and loanbusiness on a principal-to-agent basis of commercial banks shall be carried out in compliance

with applicable regulations. Regulation on access to the banking market shall be furtherstrengthened and the effectiveness of off-site supervision and on-site inspection shall beincreased.

Regulation on the net capital of securities and futures firms shall be strengthened, and the

system of risk control indicators with net capital at the core shall be improved. Dynamicmonitoring of risk control indicators and additional net capital mechanism shall be enhanced.The system for the classified regulation of securities and futures firms shall be improved.Firms that are engaged in securities- and futures-related activities shall continue to improvecorporate governance and compliance management and raise risk management capabilities.Listed companies shall be directed to continue to enhance their corporate governance. The

oversight of the operations and risk prevention of securities and futures market shall beenhanced, and crack down on illegal activities such as market manipulation shall be carriedout in a stringent manner.

34

The solvency regulation system shall be improved for insurance sector, enhancing additionalcapital and restraint mechanism, and improving risk-oriented classified regulatory system.The regulatory standards and criteria for the governance of insurance companies shall be

improved, and the enforcement of corporate governance regulatory rules shall bestrengthened significantly. Supervision of the use of insurance funds shall be tightened, andinvestment risks shall be prevented. The insurance security fund shall play its due role.

SectionSectionSectionSection 2222 IncreasingIncreasingIncreasingIncreasing thethethethe effectivenesseffectivenesseffectivenesseffectiveness ofofofof financialfinancialfinancialfinancial regulatoryregulatoryregulatoryregulatory coordinationcoordinationcoordinationcoordination

The coordination mechanism between financial regulatory institutions and macroeconomic

regulatory departments over major policy and legal issues and the mechanism of financialstability information sharing shall be improved, making information sharing a standard andregular practice. Criteria for the classification of financial institutions shall be specified,regulatory policies shall be harmonized, regulatory arbitrage shall be reduced, and regulatory

gaps shall be filled. Supervisory coordination on activities across multiple lines of business,new products and new businesses shall be strengthened. Functional regulation on financialproducts shall be explored, and market access of highly-linked and highly complexinnovative products shall be overseen in a strict manner. Cross-industry and cross-marketrisks shall be prevented. The regulatory framework for the cross-border capital flow ofRenminbi and foreign currencies shall be established and improved, enhancing coordinated

regulation of Renminbi and foreign currencies. Coordinated resolution of financial risks shallbe strengthened, and the level of capabilities of disposing systemic financial risks shall beraised.

SectionSectionSectionSection 3333 StrengtheningStrengtheningStrengtheningStrengthening thethethethe preventionpreventionpreventionprevention andandandand warningwarningwarningwarning ofofofof systemicsystemicsystemicsystemic financialfinancialfinancialfinancial risksrisksrisksrisks

A methodology and operational framework for the monitoring and assessment of systemic

financial risks compatible with China's national conditions shall be developed and improved,enhancing cross-industry, cross-market and cross-border financial risk monitoring andassessment mechanism, and strengthening major risk identification and warning. Theregulatory responsibilities and rules in connection with cross-industry, cross-market and

cross-border financial business and financial holding company shall be specified. Thesupervision and regulation of systemically important financial institutions shall bestrengthened. Financial institutions shall be guided to effectively enhance management ofgovernment debts and to closely follow the risks of local government financing platforms, soas to avoid the mutual transmission of fiscal and financial risks. The statistical surveillance,the risk assessment and macro-prudential administration of the "shadow banking system"

shall be beefed up. Cross-border capital flow surveillance and warning system shall beimproved, and the emergency plan for international balance of payments shall be enhanced.

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SectionSectionSectionSection 4444 EstablishingEstablishingEstablishingEstablishing andandandand improvingimprovingimprovingimproving thethethethe depositdepositdepositdeposit insuranceinsuranceinsuranceinsurance systemsystemsystemsystem andandandand thethethethe exitexitexitexit

mechanismmechanismmechanismmechanism ofofofof financialfinancialfinancialfinancial institutionsinstitutionsinstitutionsinstitutions

A deposit insurance system shall be established and improved, expediting the legislativeprogress of deposit insurance. The Deposit Insurance Regulations shall be promulgated asappropriate to define the basic functions and organizational pattern of the deposit insurancesystem. The administrative system of the securities investor protection fund, the futuresinvestor safeguard fund and the insurance safeguard fund shall be further improved. TheRegulations on the Securities Investor Protection Fund shall be adopted. Research and

drafting of the Regulations on Insurance Company Risk Resolution shall be conducted. Theaforementioned initiatives shall be aimed at establishing a legal system for the bankruptcy offinancial institutions compatible with China's national conditions, regulating the proceduresof exit of financial institutions and strengthening effective linkage between administrative

exit and judicial bankruptcy.

SectionSectionSectionSection 5555 ImprovingImprovingImprovingImproving thethethethe financialfinancialfinancialfinancial oversightoversightoversightoversight systemsystemsystemsystem ofofofof locallocallocallocal governmentsgovernmentsgovernmentsgovernments

The central financial supervisory authorities shall play their role of guidance, coordinationand supervision. The consistency and authoritativeness of reform and development strategiesof the financial industry, the financial macro-administration policies and regulatory rules andstandards shall be maintained. Local governments shall be motivated to properly playing their

due role. The awareness and responsibilities of financial regulation shall be strengthenedamong local governments, further clarifying the administrative responsibilities of localgovernments in respect of small-credit loan companies and guarantee companies andstrengthening the risk resolution responsibilities of local governments. Local governmentsshall make great efforts to improve financial environment and reduce administrative

intervention to facilitate healthy economic and financial development.

SectionSectionSectionSection 6666 GuidingGuidingGuidingGuiding andandandand regulatingregulatingregulatingregulating thethethethe healthyhealthyhealthyhealthy developmentdevelopmentdevelopmentdevelopment ofofofof privateprivateprivateprivate lendinglendinglendinglending

Institutional frameworks such as laws and regulations shall be improved. Proper guidanceand education in the area of private lending shall be strengthened. Private lending shall play

their role as a supplement to public financing. Illegal financial activities such as usury, illegalfund raising, underground banks and illegal securities shall be cracked down, strengtheningthe surveillance and regulation of guarantee companies and pawnshops, and maintaininggood financial order.

36

ColumnColumnColumnColumn 4:4:4:4: DepositDepositDepositDeposit insuranceinsuranceinsuranceinsurance systemsystemsystemsystem

Deposit insurance system is an institutional arrangement for the risk resolution by depositoryfinancial institutions such as commercial banks. Under the deposit insurance system, depository

financial institutions purchase deposit insurance from depository insurance firms and when anyfinancial institution fails or goes bankrupt, the relevant depository insurance institution will usemoney advanced from depository insurance funds to satisfy depositors’ claims and timelyresolve the failing institution. Such a system has the function of protecting the interests of

depositors and maintaining financial stability. Compared with government direct aid tofinancial institutions, the depository insurance system has the advantage of sharing financiallosses caused the bankruptcy of financial institutions among the market, shareholders anddepositors through the establishment of a market-oriented risk compensation mechanism. Sincethe US established the first depository insurance system in the world in the 1930s, more than

one hundred countries have introduced such a system, which has become an important meansfor the government to prevent and mitigate systemic financial risks and respond to financialcrises.

37

ChapterChapterChapterChapter VIIIVIIIVIIIVIII ConsolidatingConsolidatingConsolidatingConsolidating thethethethe groundworkgroundworkgroundworkgroundwork andandandand optimizingoptimizingoptimizingoptimizing thethethethe environmentenvironmentenvironmentenvironment forforforfor

financialfinancialfinancialfinancial developmentdevelopmentdevelopmentdevelopment

Efforts shall be made to improve financial laws and regulations, enhance the development offinancial infrastructure, standardize financial accounting statistical system, increase the levelof IT application in financial industry, enhance financial research, and develop pools offinancial professionals for the safe and effective operation of the financial system.

SectionSectionSectionSection IIII ContinuingContinuingContinuingContinuing totototo enhanceenhanceenhanceenhance legallegallegallegal developmentdevelopmentdevelopmentdevelopment governinggoverninggoverninggoverning thethethethe financialfinancialfinancialfinancial industryindustryindustryindustry

Efforts shall be made to draw reference from international experience of financial reform and

improve the legal framework governing the financial industry in light of the needs of reformand development of financial industry. The adoption of laws and regulations in such areas asoffer of lines of business across multiple financial sectors, deposit insurance, bankruptcy offinancial institutions, and regulation of listed companies, credit rating and credit investigation

shall be expedited. Legislation in agricultural insurance shall be accelerated. Legislation onthe protection of financial consumers shall be beefed up. Laws and regulations governing andguiding private lending and crack down on illegal financial activities shall be adopted. TheLaw of the People’s Republic of China on the People’s Bank of China, the Law of thePeople’s Republic of China on Notes, the Law of the People’s Republic of China onSecurities, the Law of the People’s Republic of China on Securities Investment Funds, and

the Regulations for the Administration of Futures Trading shall be further revised. Actionsshall be taken to drive forward the adoption of the Law of the People’s Republic of China onFutures and the issuance of judicial interpretations of the Law of the People’s Republic ofChina on Insurance. Regulatory rules on various financial markets, financial products andfinancial institutions shall be improved.

SectionSectionSectionSection IIIIIIII AdvancingAdvancingAdvancingAdvancing thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof thethethethe paymentpaymentpaymentpayment systemsystemsystemsystem andandandand thethethethe creditcreditcreditcredit historyhistoryhistoryhistory

systemsystemsystemsystem andandandand initiativesinitiativesinitiativesinitiatives suchsuchsuchsuch asasasas thethethethe anti-moneyanti-moneyanti-moneyanti-money launderinglaunderinglaunderinglaundering programprogramprogramprogram

The improvement of payment settlement infrastructure shall be expedited. The central bank’ssecond-generation cross-bank payment system and cross-border Renminbi settlement system

shall be developed. The application of non-cash payment instruments shall to promotedcontinuously, further improving the real-name account system, and enhancing supervisionand administration of non-financial institutions that engage in payment services. Theregistration, custody, transaction and clearing systems of financial markets shall be furtherimproved. An information system covering each sector of the society shall be established, thenational basic database of financial credit information shall be improved, and the

development of a unified platform of credit investigation for the financial industry shall befacilitated. The development of credit rating agencies shall be promoted in China, enhancing

38

competitiveness and credibility. The development of industry credibility and local credibilitymust be expedited, with the SME and rural credit systems improved. An anti-moneylaundering program that is consistent with the international standards and China’s national

conditions shall be introduced. Research on the establishment of an anti-money launderingsystem for specific non-financial sectors shall be conducted, and the anti-counterfeitingcapabilities in respect of Renminbi shall be increased.

SectionSectionSectionSection IIIIIIIIIIII ImprovingImprovingImprovingImproving thethethethe financialfinancialfinancialfinancial accountingaccountingaccountingaccounting systemsystemsystemsystem andandandand thethethethe statisticalstatisticalstatisticalstatistical systemsystemsystemsystem

Financial enterprises’ financial rules and procedures shall be improved. The reform of

international financial reporting standards shall be followed up and research shall beconducted thereupon. Convergence between domestic financial and insurance accountingstandards and relevant international financial reporting standards shall be promoted. Thestandardization of financial statistical accounting shall be driven forward, establishing a

unified comprehensive financial statistical system. The monitoring of the size of the overallfunding provided to the real economy shall be supported. Statistics relating to the balance ofpayments shall be further improved, revising relevant statistical rules in line with therequirements of the sixth edition of the Balance of Payments Manual, and updating thetemplate of statistical report forms and presentation of tables. An integrated financialstatistical information platform shall be created, improving the statistical information sharing

mechanism.

SectionSectionSectionSection IVIVIVIV ImprovingImprovingImprovingImproving thethethethe levellevellevellevel ofofofof ITITITIT applicationapplicationapplicationapplication inininin financialfinancialfinancialfinancial industryindustryindustryindustry

Innovation of financial services and management shall be promoted through technologicalmeans and the level of IT application in financial industry shall be increased. The financialinformation protection system shall be improved and the risk prevention capabilities of

information system shall be significantly increased. E-transactions shall be promoted and thepenetration of e-transaction in financial industry shall increase continuously. A system offinancial IT application standards shall be established, and the testing and certification of ITapplication standards shall be advanced. Bank card chip-based migration shall be fully

implemented. An IT system required for the reform of foreign exchange administration in thenew era shall be put in place.

SectionSectionSectionSection VVVV ProtectingProtectingProtectingProtecting thethethethe rightsrightsrightsrights andandandand interestsinterestsinterestsinterests ofofofof financialfinancialfinancialfinancial consumersconsumersconsumersconsumers

The development of the system and institutional organization for protecting the rights andinterests of financial consumers shall be strengthened in reference to international experience.Financial institutions shall be urged to comply with laws and regulations on the protection of

consumer rights and honor commitments to the public. A complaint processing and sanctionmechanism for the protection of the rights and interests of financial consumers shall bedeployed. Educational and advisory systems for the protection of financial consumers shall

39

be reinforced. Financial knowledge and awareness campaigns to increase the securityawareness and self-protection capabilities of financial consumers shall be conducted actively.

SectionSectionSectionSection VIVIVIVI IncreasingIncreasingIncreasingIncreasing thethethethe levellevellevellevel ofofofof financialfinancialfinancialfinancial studiesstudiesstudiesstudies

Timely analysis and forecast of domestic and foreign economic and financial developmentsshall be made in order to provide scientific basis for financial macro-regulation. Basic data offinancial institutions and markets shall be collected and examined. Systemic financial risksshall be measured and reported. Research on measures to tighten supervision on financialinstitutions and financial markets shall be conducted. International standards and practices in

connection with financial risk management shall be promoted. Financial stability assessmentand stress test for financial institutions shall be beefed up. Capabilities for the identificationof systemic financial risks shall be increased. Research on basic economic and financialtheories shall be increasingly enhanced, and teams of highly qualified researchers shall be

developed.

SectionSectionSectionSection VIIVIIVIIVII DevelopingDevelopingDevelopingDeveloping poolspoolspoolspools ofofofof financialfinancialfinancialfinancial professionalsprofessionalsprofessionalsprofessionals

The mid- and long-term planning for the development of financial professionals shall beimplemented. The development of various types of financial professionals shall be advancedin a coordinated manner. The development, recruitment and training of highly qualifiedprofessionals with innovative capabilities and international experience shall be enhanced.

Industry qualification admission and professional technical qualification certificationmanagement shall be regulated, optimizing the allocation of financial human resources andpromoting the reasonable flow of professionals. The system for the service in connection withand evaluation of financial professionals shall be improved, creating a grounded reasonableremuneration system for financial industry and improving incentive and restraint mechanisms.

Recruitment and training of financial professionals with potentials shall be strengthened anda database gathering their information shall be put in place.

SectionSectionSectionSection VIIIVIIIVIIIVIII AdvancingAdvancingAdvancingAdvancing thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof industryindustryindustryindustry self-regulatoryself-regulatoryself-regulatoryself-regulatory organizationsorganizationsorganizationsorganizations

The development of industry self-regulatory organizations shall be enhanced, improving the

governance structure of self-regulatory organization, and improving the level of industryself-regulation. The boundaries between financial regulation, self-regulatory organizationsand the market shall be further defined. Self-regulatory organizations shall play their role inproviding services, reflecting requests and regulating their members’ behaviors, enhancingthe restraint power of self-regulatory pacts, urging members to operate in compliance withthe law, improving service capabilities and protecting the lawful rights and interests of the

industry.

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ChapterChapterChapterChapter IXIXIXIX ImprovingImprovingImprovingImproving thethethethe assuranceassuranceassuranceassurance mechanismmechanismmechanismmechanism forforforfor thethethethe implementationimplementationimplementationimplementation ofofofof thethethethe PlanPlanPlanPlan

This Plan reflects national strategic intentions in financial development and reform and serves

as an important basis for national financial adjustment and control, fulfillment of regulatoryresponsibilities and provision of public services. Government departments and financialadministration departments at all levels shall fulfill their responsibilities in a comprehensivemanner, formulate and implement measures for the development and reform of the financialindustry, create a favorable policy environment and market environment, guide the behaviorsof market entities, and achieve various objectives under the Plan, consistent with the

development and reform purposes set forth in the Plan.

SectionSectionSectionSection IIII EnhancingEnhancingEnhancingEnhancing thethethethe organizationalorganizationalorganizationalorganizational andandandand directiondirectiondirectiondirection forforforfor thethethethe implementationimplementationimplementationimplementation ofofofof thethethethe

PlanPlanPlanPlan

Accountability for the achievement of the Plan’s objectives shall be implemented under the

overall coordination of government departments at various levels and financial administrationdepartments. Implementation schemes under the Plan shall be prepared in a timely fashion,identifying inter-department work division, properly assigning work responsibilities, andincluding the implementation results of the Plan in departments’ performance evaluationobjectives. All departments concerned shall enhance their respective due role of direction inthe implementation of the Plan by ensuring diligent organization, coordination, cooperation

and synergy.

SectionSectionSectionSection IIIIIIII EnhancingEnhancingEnhancingEnhancing consistencyconsistencyconsistencyconsistency andandandand harmonizationharmonizationharmonizationharmonization withwithwithwith plansplansplansplans inininin otherotherotherother areasareasareasareas

Consistency between this financial plan and plans in other areas promulgated by the stateshall be enhanced. Communication and coordination between departments at all levels shallbe strengthened. Local financial planning shall be consistent with this Plan to a proper extent,

so as to develop a financial planning system where national planning on the development andreform of the financial industry plays a leading role and various levels of local governmentplanning on financial development play a complementary role in a consistent and harmonizedmanner.

SectionSectionSectionSection IIIIIIIIIIII ImplementingImplementingImplementingImplementing andandandand improvingimprovingimprovingimproving thethethethe evaluationevaluationevaluationevaluation mechanismmechanismmechanismmechanism ofofofof thethethethe PlanPlanPlanPlan

A system designed for the monitoring, examination and evaluation of the Plan’simplementation shall be put in place. Relevant policy directions and level of efforts shall beadjusted as appropriate in light of national macroeconomic and financial developments forthe purpose of successful achievement of the objectives of the Plan. Countermeasures shall betaken to address new developments and problems emerging during the course of the Plan’s

implementation and comments on adjusting and revising the Plan shall be raised. Disclosure

41

of information about the Plan’s implementation shall be enhanced and the public shall beencouraged to participate in overseeing the effective implementation of the Plan.

Annex: Indicators for the development of the financial industry during the 12th Five-yearPlan period and their explanations

42

Annex:Annex:Annex:Annex:

IndicatorsIndicatorsIndicatorsIndicators forforforfor thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof thethethethe financialfinancialfinancialfinancial industryindustryindustryindustry duringduringduringduring thethethethe 12121212thththth Five-yearFive-yearFive-yearFive-year PlanPlanPlanPlan

periodperiodperiodperiod andandandand theirtheirtheirtheir explanationsexplanationsexplanationsexplanations

I.I.I.I. IndicatorsIndicatorsIndicatorsIndicators forforforfor thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof thethethethe financialfinancialfinancialfinancial industry:industry:industry:industry: duringduringduringduring thethethethe 12121212thththth

Five-yearFive-yearFive-yearFive-year PlanPlanPlanPlan period,period,period,period, thethethethe valuevaluevaluevalue addedaddedaddedadded createdcreatedcreatedcreated ofofofof financialfinancialfinancialfinancial servicesservicesservicesservices shallshallshallshall bebebebe

maintainedmaintainedmaintainedmaintained atatatat aaaa levellevellevellevel thatthatthatthat accountaccountaccountaccount forforforfor aroundaroundaroundaround 5%5%5%5% ofofofof GDPGDPGDPGDP....

Explanations on the estimation: 1. International experience shows that the share of valueadded of financial services in GDP has a tendency of slow growth. For the United States

during the 1950s, 1980s and the first decade of the 21st century, this share stood at 3.22%,5.59% and 8.01% respectively. For Japan during the 1980s and the first decade of the 21st

century, this figure reached a level of 5.79% and 6.53% respectively; 2. For China during the1990s and the first decade of the 21st century, the share of value added of financial services in

GDP was 4.46% and 4.42% respectively; 3. During the 12th Five-year Plan period, the valueadded of China’s financial services is expected to experience faster growth compared with

GDP growth, with the value added of financial services accounting for about 5% in the GDP.

II.II.II.II. IndicatorsIndicatorsIndicatorsIndicators forforforfor thethethethe developmentdevelopmentdevelopmentdevelopment ofofofof financialfinancialfinancialfinancial industry:industry:industry:industry: bybybyby thethethethe endendendend ofofofof thethethethe 12121212thththth

Five-yearFive-yearFive-yearFive-year PlanPlanPlanPlan period,period,period,period, thethethethe directdirectdirectdirect financingfinancingfinancingfinancing ofofofof non-financialnon-financialnon-financialnon-financial enterprisesenterprisesenterprisesenterprises willwillwillwill

accountaccountaccountaccount forforforformoremoremoremore thanthanthanthan 15%15%15%15% ofofofof thethethethe overalloveralloveralloverall fundingfundingfundingfunding providedprovidedprovidedprovided totototo realrealrealreal economy.economy.economy.economy.

Explanations on the estimation: during the 11th Five-year Plan period, there had been aremarkable growth in the size of overall funding provided to real economy and a remarkableincrease in the share of direct financing raised by non-financial enterprises in overall fundingprovided to real economy. During the 10th Five-year Plan period of 2002 through 2005, thisshare stood at an annual average of 5.03%; and during the 11th Five-year Plan period, it grew

to an annual average of 11.08%. During the 12th Five-year Plan period, under the policysupport of continued increase in the share of direct financing, the share of equity and bondfinancing of non-financial enterprises in overall funding provided to real economy is expectedto increase significantly.